Detroit is one of America’s most cash-strapped cities. But as Linda Yablonsky discovers, it has also become a rich breeding ground for a new generation of artists.

Five years ago, the painter Hernan Bas told me he was moving from Miami to Detroit. I couldn’t imagine why. “Because,” he said, “Detroit is the city of tomorrow.” I laughed out loud. A month later, I found myself there on an overnight trip with three friends from New York. The Museum of Contemporary Art Detroit ­(MOCAD) had just opened, and we wanted to see it. We also saw Detroit.

The city that once changed the world by giving it the car was now an enormous junker, its parts scattered and its bumpers battered but its engine still running. We saw a street full of rotting houses with polka dots on the shingles and stuffed animals hanging from the windows, a big bronze fist commemorating Joe Louis, and the vast remains of the Packard plant, which looked as if a neutron bomb had dropped on it. We saw palatial mansions, many boarded up, and regal Art Deco skyscrapers—as well as single-family homes standing amid acres of neglected land from which entire neighborhoods had vanished.

Finally, we passed the old Michigan Central train station, an 18-story ruin of Beaux Arts magisterial grandeur. It haunted me then, and it haunts me now, along with the rest of this consternating, spellbinding, tragic town—the most fascinating city in the country. In what other American metropolis could a private citizen own a bridge to Canada? Where else is there a major industrial center with yawning prairies in its midst? And where, but in Detroit, could an artist rent a steel mill for two months and transform it into a giant sculpture on view for a single day?

“This town has a magic,” said Chido Johnson, 42, a sculptor I met during my weeklong stay this summer, my third trip there in a year. Johnson, who was born in Zimbabwe, arrived nine years ago and never looked back. “I grew up in a war zone,” he said, “so Detroit felt familiar right off. The first week I was here, I walked into the public library, and there was a calypso band playing. Can you imagine?”

Bas felt the magic when he bought his five-bedroom house for $150,000—roughly the price of one of his paintings. Matthew Barney felt it when he commandeered the steel mill for the fiery finale to an epic eight-hour performance about the life and death of a Chrysler Imperial. Photographers feel it whenever they come for spectacular pictures that locals deride as “ruin porn.”

It is not an easy place to reckon with or to understand—for one thing, the scale of decay is astounding. Yet Detroit is attracting artists in numbers large enough to earn it a designation as another Berlin: a city with a struggling economy where creative types can live and work cheaply—and where, like Barney, they can realize projects that would be impossible most anywhere else. In Berlin, though, artists pursue international careers; in Detroit, they speak only to Detroit—because, they say, anywhere else they would just be making art. In Detroit, they can make a difference.

Barely more than 700,000 people actually live here—in an area of 140 square miles. A 1967 race riot accelerated white flight to the suburbs, where the city’s wealth still is, and thanks to the mortgage crisis and record unemployment, the exodus—no longer confined to one race—isn’t over. Most commuters travel on freeways that slice through neighborhoods they never see from the road. Local streets are as unpopulated at midday as they are at night, when a single footstep can sound like a thunderclap. Detroit is eerie—and it’s up for grabs, which is one reason artists see the Motor City as the Promised Land.

The city’s storied past and almost grotesque beauty give them deep reserves of both subject and material. During my visit in July, one artist, Gregory Holm, staged a free concert at a 19th-century firehouse that featured members of the Detroit Symphony Orchestra and a propane-­fueled glass-pipe organ he designed. In a blighted neighborhood on the city’s West Side, I found artist Mitch Cope, 38, turning a detached garage covered with gang graffiti into a community art space. Funded by a foundation grant, he replaced the door with colored Plexiglas and built a solar­-lighted rail fence around the whole thing. “The gangs must like me,” Cope said. They drive by every day but leave him alone.

Another artist working in virtual obscurity but on a larger scale is Olayami Dabls, 62. He owns the African Bead Museum, a marvelous gallery and shop he opened 26 years ago that now sits on a desolate corner in western Detroit. Out back, stretching across an expanse of overgrown lots, Dabls has created an elaborate theater of junk sculpture and abstract ­painting—a visual poem that functions as a forceful and witty metaphor for racial oppression. In one area, large craggy stones sit upright on old school-desk chairs facing a round stone with a rusty pipe embedded in it. “That’s Iron Teaching Rock How to Rust,” he said. “People are rocks that tell stories.”

At the Heidelberg Project—the one with the stuffed animals—I met with Tyree Guyton, 56, Dabls’s celebrated rival in Detroit. This 25-year-old ­outdoor museum of jaw-dropping assemblage has grown into a vibrant educational program and an attraction that draws 275,000 visitors a year. On ­another abandoned property, a five-minute drive away, Guyton had a new project in ­progress—Street Folk II—a snaking river of 10,000 mismatched and painted shoes he gathered to represent all the people who have had to walk away from their homes. “I want to shake up the art world,” Guyton said. “Sometimes the world shakes you up,” he added a moment later. “That’s a good thing, too. We need both the good and the bad—it’s all beautiful.”

I joined art dealer Monica Bowman, 34, for dinner with her husband, Dick Goody, 55, director of the Oakland University Art Gallery in suburban Detroit. The Butcher’s Daughter, Bowman’s small gallery in nearby Ferndale, is thriving with the support of just a few collectors. She brought along Sabrina Nelson, 44, an artist who works as an admissions officer for the College for Creative Studies (CCS), and Sabrina’s 24-year-old son Mario Moore, now a first-year graduate student in painting at Yale.

After dinner, Nelson and Moore took me to the Burton School, one of many large buildings that would be vacant if they weren’t rented to artists for studio use. “It’s our swag,” Nelson said. “Artists here get the best swag.” We met three friends of Moore’s who were working on a documentary about the Brewster-Douglass housing projects, the childhood home of Diana Ross. Long abandoned, the four remaining brick towers are yet another spectral presence in the empty landscape.

“It’s all about reinvention now,” said Oren Goldenberg, the film’s director. Like many artists here, he returned to the city from the suburbs in 2007. With him was Sterling Toles, the composer building the film’s sound track from a mixture of angry rap and more delicate sounds. “I think of Detroit as illumination training school,” he said, pointing to a bumper sticker in the room that read fuck cool cities. “It was so dark. Here, you become the light.”

Case in point: Levon Millross, 30, another homegrown artist. When he’s not working as a hairstylist, he tends to dress in costume—wearable sculptures he makes out of whatever materials are at hand. One night he showed up for a party at the artist-run North End Studios in a hilarious headdress: a black and white amalgam of 45-rpm records, wire hangers, black and silver chains, shells, metal mesh, and long houndstooth-patterned vinyl dreads. His friend Amanda Gordon, 30, was decked out in another of his ingenious creations: a cape of fringed Mylar strips draped from a puffy shawl collar wrapped around the kind of large plastic duct tubes you might see on an industrial vacuum cleaner.

Tate Osten, 52, is a Russian-born transplant from New York and a former professional art adviser who recently opened Kunsthalle Detroit, a nonprofit exhibition space for video art and what she calls “light-based sculpture,” located in a failed bank on a deserted intersection in one of Detroit’s roughest neighborhoods. Using $120,000 of her savings, along with contributions from a handful of business partners and family members, she managed to get the place together for a show by such name artists as William Kentridge, Bill Viola, and Jesper Just. In the weeks after the opening in June, though, thieves stole computers and video equipment, and others sprayed graffiti on the freshly painted facade. When I got there, a smiling drunk who identified himself as Nelson Mandela was stretched out on the front stoop. “I don’t know why, but I have no fear here,” Osten told me. “I’m on a ­mission, that’s all.” For her, that involves making the grassroots art scene more international in scope. “I have to admit, I’m challenged by the provinciality here,” she said.

Some in the local art community see Osten as a carpetbagger whose shows fall outside the interests of product-oriented, object-minded Detroit. But disconnection from the global art world doesn’t just limit ­Detroit’s profit potential—it also hurts the city’s biggest chance for renewal as a cultural destination. “Where else can you go in America and see something like our train station?” asked Michelle Andonian, 53, a photographer and lifelong Detroiter still fixated by her hometown. “It’s our Parthenon. It could be our Bilbao—the center of our arts development—if it’s handled right.”

Designed by Warren and Wetmore, the architects of New York’s Grand Central station, and never actually finished, the station is a neoclassical limestone behemoth that opened in 1913 and closed in 1988, when Amtrak stopped serving it. The marble waiting room, based on a Roman bathhouse, had bronze doors and ornamented 54-foot vaulted ceilings. Though some in Detroit think this powerful symbol of failed ambition is an eyesore that should be torn down, the creative community is lobbying its proprietor, Manuel Moroun—a local businessman who also owns the Ambassador Bridge that links Detroit to Canada­—for its reclamation as an arts center that could accommodate monumental works, like the Starn twins’ Big Bambú, a hit on the Metropolitan Museum’s rooftop last year.

“Art defines culture, and culture leads commerce,” said Leon ­Johnson, 52, a South African–born ­conceptualist who heads the fine-art department at CCS. Many of the school’s artists and designers—who used to flee the city soon after graduation—are now sticking around, something Johnson aims to support and encourage. He’s a cofounder of Signal-Return, a nonprofit community print shop that opened last month, where artists like Mark Dion and Fritz Haeg lead workshops. Johnson is also incubating the Emergent Futures Lab, a summertime design-and-build think tank intended to foster productive discussion of what Johnson calls “problems worth having.”

Some of those problems are visible in the city’s layout: In Boston-Edison, the community where Henry Ford and Motown’s Berry Gordy once lived, homes ranging from the modest to the magnificent were originally built to satisfy the social ambitions of wealthy whites. Other neighborhoods were divided into ethnic enclaves called Mexicantown, Corktown, Poletown, and Black Bottom, an African-American community. The latter (named for the fertile soil under it) was razed in the Sixties to make room for Lafayette Park, a complex of modernist town houses and high-rises designed by Mies van der Rohe. Though Detroit housing is less segregated now, its legacy is still apparent.

The city’s fiscal crisis, along with its stubborn insularity, has deeply affected the Detroit Institute of Arts (DIA), whose collection ranks among the most significant in the country. Budget cutbacks have left it with a skeletal staff—I found photography curator Nancy Barr, 49, working virtually by her lonesome. Though DIA owns singular collections of post-Impressionist, modern, and contemporary art, its biggest attraction is “Detroit Industry”—a series of enormous murals of workers at the Ford Rouge plant, painted by Diego Rivera in the early Thirties. “I’m trying to get people here to understand that our historic works were racy in their day,” Rebecca Hart, 57, another curator, sighed, “and that it’s okay to buy controversial work today.”

But there is scant state or city funding for the arts, and no arts council. At MOCAD, a noncollecting institution housed in a block-long one-story building that was once an auto showroom, outgoing director Luis Croquer, 44, raised some money via corporate and private sources, though the bulk of it has come from foundations. During his three-year tenure, he regularly brought cutting-edge, international art to the museum, where music performances made it the social hub of the art scene. Still, the building has no air-conditioning, and on one hot day, when I walked through a striking, supremely intelligent show of barely there conceptual art, I was nearly the only visitor.

I also looked up Hernan Bas, who lives with Peter Rozek, a former ­Miami arts administrator, at their home in Indian Village—a mixed-race neighborhood with its own security patrol. Both 33, they are among its youngest residents. By design, no two houses are alike, and none are small. The entire neighborhood is listed in the National Register of Historic Places. Bas pointed out one that is rumored to have a tunnel to the Detroit River. Another, he said, is all ballrooms.

Each room of their Mediterranean Revival house is color-matched to an art collection that includes prints by Andy Warhol and Damien Hirst, photographs by Catherine Opie and Sue de Beer, and paintings by contemporaries like Matthew Brannon, Chloe Piene, and Daniel Hesidence. “The upkeep can be exhausting,” Bas joked. “It takes at least an hour just to dust the art.”

A year ago, Bas acquired a two-story former spice-company building in Eastern Market, a warehouse ­district of food purveyors that is quickly becoming an artists’ mecca. “I paid $40,000,” he said, “and almost immediately was offered three times that price.” Inside, he built a studio and a darkroom in the storefront and basement, a sleek loft apartment on the second floor, and a deck on the roof. To do the work, he hired Adam Miller, 40, and Nicola Kuperus, 36, an artist couple who do construction, make films, and play in an art-techno band, called Adult, that has an international following.

Their Craftsman-style house sits on a rare pedestrian street in the shadow of the Fisher Building, one of many local structures designed by Albert Kahn, the architect who put his stamp on Detroit the way Charles Rennie Mackintosh did on Glasgow. (General Motors’ original, Kahn-designed towers are around the corner.) Miller and Kuperus paid $130,000 for their four-bedroom house seven years ago; it now contains their recording studio. Miller paints next door in a former photo studio and skateboards on a half-pipe he built inside it. Out back, Kuperus grows vegetables in a small garden that had been a driveway.

Both Miller and Kuperus attended CCS, and after graduation Miller tried living in San Francisco. He lasted 11 days. He said he prefers Detroit’s dystopian, road-warrior character—and its propulsive music scene—better. “It’s changing now,” he said. “People used to say, ‘Oh, you’re from Detroit? What’s that like?’ Now they say, ‘What’s that like? I’m thinking of moving there.’”